13 July 2021
Seen from an economic justice perspective, the results of the recently concluded meeting of G20 Finance Ministers and Central Bank governors in Venice are a huge disappointment. The G20 through its finance leaders resoundingly echoed the OECD tax proposals, considered by many leaders of developing countries and CSOs as “false solutions.”
“The G20 did not address the fundamental flaws in the international tax architecture nor respond to the needs, rights, and interests of peoples of the Global South,” said Lidy Nacpil of the Asian Peoples Movement on Debt and Development (APMDD).
“The disappointing outcome of this latest G20 finance leaders’ meeting is perhaps not surprising. It simply underscores the longstanding objection of civil society organizations to the persistent hijacking by rich countries of the agenda to transform global tax rules that have historically benefitted multinational corporations residing within their jurisdictions,” Nacpil added.
In a Communique issued after their meeting concluded last July 10, G20 finance leaders noted that the “global outlook” has improved but that the recovery has “great divergence” across and within countries. The so-called “historic agreement” of the G20 finance leaders is built upon a mere endorsement of the Two-Pillar solution on tax issues proposed by the OECD but widely criticized by CSOs and thought leaders from Africa, Latin America, Asia, Europe, and other parts of the world.
"We endorse the core elements of the two pillars on the profit reallocation of multinational enterprises and the global minimum tax as set out in the statement released by the G20/OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS)," read the Communique of the G20 Finance Ministers and Central Governors’ Meeting on July 10.
The core elements described by the G20 finance deal refer to the OECD’s global tax proposals contained in the statement “A Two–Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy.” Released just last 1 July 2021, the lnclusive Framework on BEPS in turn had strongly championed the earlier tax deal of the G7. In June of this year, the G7 countries, the world’s elite, agreed on the following: 1) on Pillar One, a global reallocation of taxing rights residual, non-routine profits of the largest 100 multinational companies; and 2) on Pillar Two, a global minimum corporate tax rate of 15%. This rate is markedly lower than both the global average corporate tax rate at 25% and recommendations by the UN High-Level Panel for Fiscal Accountability, Transparency, and Integrity (UN FACTI).
Intense criticisms by civil society organizations worldwide concern the prospective impacts of these proposals on tax revenues of countries in the Global South.
“To force through such an unfair reform, giving the lion’s share of revenue to the largest OECD members when lower-income countries lose the greatest share of tax revenue to corporate tax abuse, is shocking,” Alex Cobham, chief executive of the Tax Justice Network, said in a statement on the OECD’s proposal expected to be adopted by the G20 Finance Ministers.
Cobham denounced the timing of the proposal as a strikingly low global minimum corporate tax rate is set to generate a paltry amount of additional revenues for developing countries struggling to finance essential public services, as revealed in The State of Tax Justice 2020 report.
The Global Alliance for Tax Justice (GATJ) also raised serious concerns on the “unequal” distribution of revenues from taxed profits under Pillar One. “Far from ensuring the taxing rights of developing countries, the ‘solution’ will limit the right to tax of source countries to a small proportion of MNCs’ profits and entrench taxing rights to headquarter countries over global profits,” GATJ’s statement released on July 5 read. According to Dereje Alemayehu, chair of GATJ, this signifies that the proposals “evidently do not address the fundamental problems of the current international tax architecture and ignore the developing countries’ interests.”
These concerns are shared by many civil society organizations from developing countries whose governments are now under strong pressures by the OECD and G20 to endorse the proposals.
Civil society organizations in Africa issued a statement decrying the proposals for reflecting the rich countries’ “self-interest,” given the history of tax abuses, environmental degradation, and labor rights violations by multinational corporations in the region. The statement criticized the skewed allocation of revenues from Pillar Two to countries where multinationals are headquartered. “Conveniently, these tend to be the finance capitals of the Global North which constitute most of the G7. The developing countries from which these profits are often extracted in the first place, and which are the most in need of fiscal resources to finance development and public services, are left by the wayside,” the statement added.
In Asia, the growing challenges in taxing digital services are expected to be compounded by the proposal to eliminate domestically-determined Digital Services Taxes (DSTs). A statement signed by civil society organizations from the Philippines called attention to the failure of the two-pillar solution to address these challenges since the proposed 15% global minimum corporate tax rate is “ridiculously low and utterly meaningless with respect to the billions of dollars earned by digital companies from developing and even some developed countries since these MNCs do not have nor need physical presence therein.”
Denouncing the “inequitable” and “undemocratic” process led by the G7 and the OECD, APMDD’s Lidy Nacpil issued a strong statement that “[s]etting new tax rules for the rest of the world must not be an initiative orchestrated by the richest 10% of the global population, whose multinational corporations have amassed billions in profit at the expense of natural resources and labor in developing countries.” For a global tax agreement that will adequately address the needs of peoples in Asia, APMDD firmly rejects the “false solutions'' proposed by the G7 and the OECD/G20, demanding governments in Asia to “fight for a just agreement through a UN Tax Convention and for an inclusive, democratic and transparent UN Tax Body.”
Developing countries whose governments are only participating in the OECD Inclusive Framework on the level of technical expertise are reportedly facing mounting pressure from OECD countries and similar informal groups to accept and ratify the G20/OECD proposals in their domestic legislation.
In the lead-up to upcoming global meetings such as the UN General Assembly in September and the G20 Summit in October this year, CSOs and other tax justice advocates from different parts of the world are expected to continue rejecting the ‘Two-Pillar solution’, advancing a transformative tax justice agenda, and clamoring for genuine solutions to address the multiple crises that continues to plague the world, deepening and widening inequalities.
Asian Peoples’ Movement on Debt and Development (APMDD)
Communications , Development Finance Team
On the eve of the UN Public Service Day, June 23, we recognize the work of public servants, especially in health care, and reiterate the urgent need to expand the fiscal space for increased investments in public services. Corporate tax abuses and other illicit financial flows (IFFs) must be stopped to plug the leaks that have been draining our economies of precious resources that should have been invested in public services.
The nightmare of COVID-19 was unleashed not only by a virus. Years of inadequate investments in public health left many countries unable to cope with the health crisis. Life-saving vaccines are now available but global inequality is also apparent in the ability of rich countries to hoard vaccines while developing countries have to make do with extremely slow vaccine rollout.
Governments must stand for the public good and respond to calls for vaccine equality and for a suspension of intellectual property rules for COVID-19 vaccines. People’s health must not be held hostage to the profit-driven agendas of pharmaceutical multinational corporations.
Pharmaceutical multinational corporations are resisting calls for a suspension of intellectual property rules for Covid-19 vaccines, effectively blocking the speedy manufacture of vaccines that will allow millions more to be protected from the virus. The record of these MNCs speaks of their loyalty to profits at the expense of the public good. This infographic provides information and links to the corporate abuses of some of the top pharmaceutical MNCs.
Note: This is an interactive image, please click red text for more information.
FOR PRINTABLE VERSION,
Agreements of the Group of Seven in its meeting early June has set the stage for even tougher fights ahead for tax justice advocates in Asia and around the world campaigning for an overhaul of tax rules to reverse growing inequality and deepening poverty.
“The G7 has decided on a tax deal among the richest 10 percent in the world for their exclusive benefit, aggressively eclipsing the global tax agenda ahead of the United Nations General Assembly, decried Lidy Nacpil of the Asian Peoples’ Movement on Debt and Development (APMDD), a member of the Tax and Fiscal Justice Asia (TAFJA) network.
“The much-vaunted pact hammered out by G7 finance ministers for a 15 percent global minimum corporate tax rate is nothing but an invitation to a race to the minimum,” says Hiroo Aoba who sits in the coordinating committee of TAFJA, representing Public Service International Asia- Pacific Office. He points out that business circles in such countries as Australia and Denmark have begun calling for lowering their corporate tax rates.
"The unacceptably low 15% minimum corporate tax rate seeks to disincentivize rich country corporations from shifting their profits from their home countries to low tax jurisdictions, but does not address the ability of the digital corporations to make tons of money in developing countries without paying corporate income tax there since they are supposedly not even present in those countries," explains Third World Network (TWN) tax lawyer Tony Salvador.
“The international tax justice campaign has long called for at least 25 percent as a global minimum. A higher minimum could generate resources necessary to tackle social-economic crises triggered by the Covid-19 pandemic and to provide essential public services to people,” Aoba adds.
Ah Maftuchan, executive director of the Jakarta-based think tank, PRAKARSA, notes that research from Tax Justice Network, a group advocating transparency in international finance, shows that a 25% minimum effective tax rate could raise US$780 billion in additional revenues worldwide.
“An alternative, fairer model for revenue-allocation proposed by civil society, known as METR, a Minimum Effective Tax Rate for multinationals, would provide non-G7 states with an additional US$355 billion,” notes Aoba.
A TAFJA member closely monitoring emerging rules on taxing the digital economy has raised another red flag. “We worry about the trajectory of the G7 statement, as it is consistent with efforts to GATTicize the power of sovereign nations to impose taxes, especially with respect to e-commerce and the digital economy. There are disturbing initiatives to impose an international tax legal framework where nations are forced to accept as normal the imposition of trade sanctions for simply exercising the sovereign right to tax. This is totally unacceptable,” says TWN’s Salvador.
He further emphasizes a fundamental principle: "The power of taxation is an essential attribute of a sovereign nation and its exercise emanates from its people and devolved upon the legislature of each nation. It should not be hindered even by international processes nor held hostage to the desires of big corporations domiciled in rich nations."
Lidy Nacpil is calling on tax justice advocates to press forward and fight for democratic mechanisms under the United Nation to address the global dimensions of tax abuses while upholding sovereignty of nations. “With countries of the Global South most severely encumbered by foregone corporate tax revenues, we reiterate our call for a UN Tax Body towards more just and fair international tax rules.”
TAFJA is a regional network of the Global Alliance for Tax Justice GATJ), a growing movement of civil society organisations and activists, united in campaigning for greater transparency, democratic oversight and redistribution of wealth in national and global tax systems.
GATJ executive coordinator Dereje Alemayehu earlier denounced the agreements forged by the G7. “It’s a déjà vu! The G7 strikes a deal among themselves and paves the way for a manipulated endorsement as an international agreement in informal platforms created by their OECD, outside the UN system.”
He warned that “developing countries are then locked forever into an ‘international agreement’ with ‘binding and non-optional dispute resolution’ arrangements which will continue to deny them their taxing rights on part of global profit generated in their economies.”